The conflict by China against Japan has nothing to do with the islands in question. The Chinese, from the top to bottom, absolutely hate the Japanese. As you will recall, the Japanese invaded the Chinese mainland in the late 1930s, thereby beginning WWII. They did it to become the supreme masters of the western Pacific and to crush the Chinese in every respect. As part of this, they invaded the city of Nanking, and in a 30 day blood lust, they butchered about 200,000 Chinese civilians, taking special glee in bayoneting babies to death and holding them up in the air on their rifles. The Japanese took lots and lots of pictures of this, as wartime trophies. There are also lots and lots of newsreels around showing live footage of this.
At the end of WWII, the Chinese were never allowed to wreak any revenge against the Japanese for this. The war just ended. Even today, the Chinese government requires that movies on the rape of Nanking be shown to school children every year, from 1st through 12th grade.
So now, China is destined to be the penultimate master of the Pacific, and are looking for any and every excuse to crush Japan and take revenge, even to the point of declaring war. (They would also become the sole economic giant of the region.) They built a modern ocean going naval fleet for this sole purpose, and have it poised and ready to go. The island question is just the excuse they have been waiting for. And if (as they surely will), the Japanese just roll over and cede or sell the islands to China, then China will be looking for another excuse to declare war upon them.
The Japanese would not last 15 minutes in an all out war with China. Though the Japanese have nuclear weapons, they are not currently "activated" and mounted on their missles ready to go, as the Chinese are. So, the big question is, are we (the U.S.) willing to commit our Pacific fleet to defend Japan against the aggression of China? I hope not. We've fought enough wars. Japan declared themselves "pacifists" after WWII, and have been living under the protection of our military forces for the past 60 years. While we spend huge amounts of our GNP on defense, they spend almost none. I say, let them fall.
Mannyrock